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|Embezzlement: The Crime We Hate To Admit
by Charles T. Wilson
You may know about a business that's experienced employee theft or fraud. But many owners feel foolish and prefer not to talk about it.
American businesses lose $50 billion annually to employee dishonesty: that's $9 per employee per day. And small businesses are much more vulnerable because they can't afford sophisticated audit and detection tools used by larger firms.
What's your level of risk?
Do you have different people requesting, preparing and signing checks? Do you receive bank and credit card statements unopened and reconcile them yourself? Do you count inventory and review payables files on a regular basis?
Any "no" answers? Read on.
What do you have to lose?
Unfortunately, many firms feel inventory shrinkage is a cost of doing business today. The bad guys hope they can take advantage of you. Your losses can come from cash, inventory, raw materials and other assets, business credit cards, checking and transfer accounts, pension and retirement plans.
What can happen?
Schemes include bid rigging and kickbacks, payments to fake vendors or for non-existent services, salary checks payable (and mailed) to "ghost" employees, forgery of company checks, and computer fraud transferring funds from your account.
The culprit is almost always a trusted employee who says he'll "handle everything" so the mundane accounting, for example, is not a burden on you, the business owner. These people are often in management positions and sometimes in cahoots with a vendor to create fictitious invoices. Losses can take place over months or years, amount to considerable sums and are not easy to detect. The American Management Association says 75% go unnoticed, and 20% of business failures come from employee dishonesty. Many losses are never reported because business owners are too embarrassed.
Prevention - what can you do?
Here's a checklist to beef up your loss prevention and mitigation strategies.
Well-designed internal financial controls and the right insurance coverage can go a long way to protecting your assets and avoiding a messy, costly and embarrassing problem.
A version of this article first appeared in The Journal of Practical Business Ideas, volume VI, no. 3
© RiskSmart Solutions® 2005